By Zachary Karabell
Twitter's initial public offering last week was everything that Facebook's botched offering a year and a half ago was not: the stock was reasonably priced; management wooed investors; and the company neither promised the moon nor the stars, and was rewarded with a substantial amount of cash raised, a stock that went up more than 75 percent, and a valuation of $25 billion.
Though shares pulled back sharply — and predictably — the day after its IPO, Twitter has now joined the pantheon of leading social media companies. It has yet to make a profit, but unlike the 1990s Internet comets it is routinely compared to, it is making substantial revenue (on pace for just under $600 million this year). That is substantially less than Facebook was making when it went public ($3.7 billion), but more than LinkedIn was generating when it went public in 2011 (estimated at $220 million).
That said, at its IPO Twitter was valued higher than either Facebook or LinkedIn at the time of their public offerings. In that sense, Twitter's reception does raise a vital question: are these companies doing more than making their founders and investors rich? Are they doing more than satisfying some nice need of their customers? Are they, in short, changing the world the way they claim? Or is that claim just a useful marketing device that makes otherwise pedestrian businesses appear to be something far grander, convincing investors to pay more than they would for equivalent businesses in more prosaic industries?
I've been wondering about this question for several years, and for now, it remains a question. The hype and draw of social media in its many and various forms is undeniable. Whether it is the Twitter IPO, or Yahoo's $1 billion purchase of Tumblr, or the panoply of new companies that pop up in Silicon Valley and NYC's Silicon Alley, these companies have buzz and they also garner income. Because so many of them serve as new media companies, occupying the same general space as journalists, they garner attention. Yahoo's Marissa Mayer gets substantial press, far more than the chief executive officers of many companies many times larger. The same can be said for Twitter and before it Groupon, Zynga, and a host of others whose size was modest compared to many public companies, but whose profile was anything but.
Ask denizens of the Valley what they think, and they'll say that companies like Twitter command premiums and generate buzz because they are transformative. They are transformative the way that Apple, Google, Microsoft and Oracle were transformative. They change the way consumers and businesses live and function, and they make it possible for people to connect ever more seamlessly to the products, services and people that they wish to and need to. Or so the argument goes.
Many people outside of the Valley view these claims with skepticism, hearing an echo of 1990s tech utopianism. And they are right — to a point. The problem with the tech utopianism of the 1990s wasn't the utopian part; it was the speculative bubble. In that respect, the problem with tech in the 1990s wasn't the technology. It was instead a toxic mix of pop culture and Wall Street that produced such overweening, Tulip mania-valuations.
And in fact, the actual innovations of technology over the past twenty years have made businesses more productive and unlocked the potential of individuals. Oracle has more than lived up to the grandiosity of its vision, and has become the digital highway for vast swaths of the world. Google is, of course, Google, and numerous smaller companies known only to the technorati are making possible everything from Big Data to the next wave of smart phones.
The scale of such potential is barely captured by official productivity statistics. As MIT's Erik Brynjolfsson and others have demonstrated, the "free goods" of the Internet such as Google, Facebook and now Twitter may be adding hundreds of billions of dollars every year to collective output without that output registering in official GDP numbers. Twitter is still amorphous in its effects, but it clearly allows for a staccato conversation about vital information, acting as a more robust version of the instant messaging that Wall Street traders found so useful in conducting business a decade ago.
In a world where ideas and information are increasingly the coin of the realm, navigating data and manipulating it have tangible value that businesses and individuals will pay for. Of course, they will also seek such services for free if they can, which increases the business challenge for companies serving those needs. Would you pay for Facebook, Google or Twitter? Advertisers will pay for your attention, and for your data, but should you have to? We already pay for cable television and Internet access, so why not for services such as Twitter and Facebook that facilitate how we navigate our lives digitally? That hasn't been an issue so far, but it is hard to imagine that it will not be.
Given how new these tools are, there is no way to make a definitive case for whether we are wasting time online or whether these new services are a key element in the next great flourishing of business and creativity. How one answers is very much a litmus for how one feels about the future. If you believe that we are capable of creating transformative technologies that also constitute viable businesses, you'll likely agree that while the current social media efflorescence may have its share of hype and greed, we are, on balance, living through the next great digital transformation. On the flip side, if you believe that we are in a downward trend of decreasing wages, irrelevant technology and a technology sector based on artifice, you'll likely think that each new Twitter is one step closer to the massive correction and contraction that is coming soon.
Twitter itself may be a fad or a transformative force, but it requires some thick ideological blinders to see it as a harbinger of 1990s bubble-dom, and as an example of greed, hubris and sheer silliness. In toto, these services and technologies are connecting people to information, ideas, products and opportunities. That is the very heart of unlocking potential, the digital equivalent of the railroad and the telegraph. It doesn't come without excess, nor without leaving initial investors burnt. But it produces a new way for humans to spend their time, money and energy. And if that is a bandwagon, I'm jumping on.
(The author is a Reuters columnist. The opinions expressed are his own.)